Dow closes with triple-digit loss

Nasdaq joins blue-chip rout on weak jobs data

MarkCotton

NEW YORK (CBS.MW) -- U.S. stocks closed lower Friday in a late pullback after a weaker-than-expected December employment report sparked concern about the U.S economy's ability to create jobs.

The Labor Department said nonfarm payrolls increased by 1,000 in December, far below the 136,000 expected by Wall Street economists, and the 181,000 to 200,000 expected by some traders.

The U.S. unemployment rate, however, unexpectedly sank to a 14-month low of 5.7 percent.

The Dow Jones Industrial Average
DJIA, -1.56%
closed down 134 points, or 1.3 percent, at 10,458, its first triple-digit intraday decline since Nov. 17. Alcoa, SBC Communications and AT&T were the most notable fallers.

In the first full week of trading for 2004, the benchmark index gained 49 points, or 0.5 percent.

The Nasdaq Composite
$COMPQ
ended its winning run -- five consecutive sessions of gains -- to close down 13 points, or 0.6 percent, at 2,087. That was well off an intraday high of 2,113.

The tech-rich index spent most of the session in positive territory, buoyed by gains in the telecom, Internet, software and chip sectors before profit taking took hold.

The Nasdaq ended the week with a 4 percent gain, based on last Friday's close of 2,006.68.

Total volume was 1.7 billion on the NYSE and 2.5 billion on the Nasdaq Exchange.

On the broader market, there were an equal number of advancers to decliners on the NYSE, while decliners outpaced gainers by a margin of 19 to 12 on the Nasdaq Exchange.

Keith Keenan, vice-president for institutional trading at Wall Street Access, said the late session weakness should not have been a surprise.

"We're just getting a little bit of profit taking into the close, which is totally justified in light of the employment numbers," said Keith Keenan, vice president for institutional trading at Wall Street Access. "The reaction is just a little later than anticipated."

Peter Cardillo, chief strategist at Global Partners Securities, said the job report was only a temporary setback for the markets.

"Obviously the number was a disappointment as far as job creation was concerned," said Cardillo, "but it doesn't derail any of the recent upbeat data we've had. It just proves that the creation of jobs is going to take a little bit longer.

"The momentum in the market continues to the upside. Today's job data served as an excuse to take some money off the table. It was vulnerable to a down day."

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said the employment report does reduce the likelihood of the Federal Reserve raising U.S interest rates in May.

"The labor market data are key to the Fed's action," said Shepherdson. "This report does not help the cause of a May tightening."

Federal funds futures contracts traded at the Chicago Board of Trade imply an 18 percent chance of a rate hike in May, down from 44 percent earlier.

For June, the odds slipped to 48 percent from 84 percent. For the Aug. 10 meeting, the odds are 77 percent for the first rate hike compared with the earlier expectation of a second rate hike.

U.S. interest rates are currently at a 45-year low of 1 percent.

Dollar tumbles; Treasury prices rally; crude gains

The disappointing job data sent the U.S. dollar tumbling against the euro. The European currency surged to a new record high against the greenback of $1.2868, before falling back slightly to trade at $1.2843.

Against the yen, the dollar remained around the 106.40 mark. Overnight, the dollar rose to as high as 108.28, with dealers attributing the move to intervention by the Bank of Japan to curb the yen's strength.

Treasury prices rallied, pushing yields to a three-month low Friday. See full story.

A benchmark 10-year note was nearly up by 1 point and 7/32 at 101 5/32, yielding 4.10 percent against 4.25 percent at the previous close.

Strength in heating fuels, as well as market concerns over tightening U.S. supplies of oil, pulled crude futures back above $34 per barrel to a fresh, pre-Iraqi war high. See full story.

Oil stocks were under pressure throughout the session after Shell slashed its proven oil and natural gas reserves by 20 percent. See full story.

Oil services companies, however, were sharply higher, with the Philadelphia Oil Service Index
OSX, +0.37%
up nearly 4 percent at $98.05, buoyed by rising energy futures prices and analyst upgrades.

Gold gains

The sliding dollar saw investors seeking refuge, once again, in gold.

Gold futures prices closed near $427 an ounce, ending the week with a 2.5 percent gain. On the New York Mercantile Exchange, gold for February delivery rose as high as $428 ounce, just 50 cents short of Tuesday's intraday, 15-year peak. See full story.

Homeland Security Secretary Tom Ridge's decision to lower the terrorist threat level to yellow or "elevated" from orange or "high" helped airlines ease off session lows late morning, before the sector once again succumbed to the general market pullback into the close.

Dow movers

On the Dow, Alcoa fell $1.41, or 3.6 percent, to $37.25 as analysts gave a mixed reception to the aluminum giant's fourth-quarter results. Read more

AT&T
T, +0.20%
tumbled 92 cents, or 4.2 percent, to $21.06, after a Deutsche Bank downgrade to "sell." Analyst Viktor Shvets says the telecom operator is under pressure in both its business and consumer markets.

SBC Communications
SBC, -1.62%
fell $1.39, or 5.0 percent, to $26.20 after Merrill Lynch downgraded its rating on the telecom operator to "sell' on valuation grounds.

IBM
IBM, -1.04%
fell $1.83, or 2.0 percent, to $91.21 after the company said overnight that the Securities and Exchange Commission may take action against it for its collusion in an accounting scandal involving retailer Dollar General
DG, -0.82%read more

Ford
F, +2.21%
fell 54 cents, or 3.2 percent, to $16.56 after the company said it expects earnings before items of $1.20 to $1.30 per share, or $3.5 billion to $3.8 billion, for full-year 2004. The current average view of 17 analysts polled by Thomson First Call is for earnings of $1.30 per share in the period.

Among telecom equipment suppliers, Lucent Technologies
LU
fell 18 cents, or 4.6 percent, to $3.70 after Morgan Stanley downgraded the company to "equal weight" from "overweight," primarily on valuation grounds.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.